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IFRS 13 Fair Value Measurement - Coggle Diagram
IFRS 13 Fair Value Measurement
1. Definition
Price that would be received to sell asset / paid transfer a liability in an orderly transaction between market participants at measurement date
Fair value = Selling price - Transport Cost
2. Types of Measurement
Principal market vs Most advantageous market
Principal market
Market with the highest sales volume
Most advantageous market
Market with the highest profit (selling price - transaction cost - transportation cost)
ONLY IN THE ABSENCE OF PRINCIPAL MARKET
Highest and best use
Legally permissible
Financially feasible
Physically possible
Heirarchy level of fair value
Level 2
Observable input + Unobservable input
Quoted price + Unquoted price
Level 3
Unobservable input
Unquoted price
Inactive market
Level 1
Observable input
Quoted price in active market
Active market = market in which transactions take place with sufficient frequency and volume to provide pricing information
Fair value of liability
AA + BB = CC
Risk adjustment: CC * i = DD
Inflation adjustment: AA * (1+r)^ = BB
CC + DD = EE
Total expected cash flow + 3rd party markup = AA
Present value of EE: EE* (1 + non performance risk + risk free rate)^ = FF